Eurozone inflation falls to lowest since Feb 2010

Inflation across the 17 countries that use the euro fell further below target in September 2013, official figures showed on Monday, news that could encourage the European Central Bank to cut interest rates again if the recovery across the Eurozone stalls.

Eurostat, the EU’s statistics office, said consumer prices were up 1.1 percent in the year to September, down from the 1.3 per cent rate recorded the previous month. September’s rate was also the lowest since February 2010 and below expectations the consensus in the markets was for a more modest decline to 1.2 percent.

The statistics agency said energy and food prices drove the fall in September. However, the core rate which excludes food, alcohol and tobacco also fell, to 1 percent from 1.1 percent, further proof that underlying price pressures are benign.

“This is welcome news for Eurozone consumers as it helps their purchasing power and it also means that the ECB can at the very least maintain its extremely accommodative policy for an extended period and actually has ample scope to take further stimulative action if it feels the need,” said Howard Archer, Chief European Economist at IHS Global Insight.

Though the inflation figures will likely be discussed this week when the ECB holds its monthly meeting, they are unlikely to prompt any immediate action.

The ECB is tasked with setting monetary policy to keep inflation at just below 2 per cent, but few economists think the Central Bank’s governing council will reduce its benchmark rate further from the record low of 0.5 percent amid signs that the economy is recovering.

In the second quarter of 2013, the Eurozone economy grew by a quarterly rate of 0.3 percent, largely on the back of Germany, Europe’s biggest economy. That followed six straight quarterly declines, the region’s longest recession since the euro currency was launched in 1999.